Capitalogix Commentary for the Week of 03/22/10

March Madness is in full force.  What's a $ Trillion here, or a $ Trillion there?

100321 Obama Fills Out His Bracket and Healthcare Wins

A Look at the Markets.

Most people consider it "bullish" when markets go up 14 of 16 days.  That should make people happy, right?

Recently, though, I've had conversations with several "old-pro" traders who expressed a sense of frustration. They view the recent push higher with skepticism. Trading discipline is allowing them to make money on the upside, but it's not as satisfying as being "right".

What do the Charts Show?

Let's look beyond the obvious up-trend.  The following chart and video, from Brian Shannon's Alphatrends site, shows that price is now below the volume-weighted average price paid since Fed Decision to leave rates unchanged.

100321 Russell 2000 Since Fed Decision Video

There is now a lot of support under our recent highs, so many expect the market to correct a little, then resume its move higher.

How Far Can the Rally Go?

On a basic level, the recent market rally shows that there's more buying
demand than selling pressure. However, when there is little selling
pressure, it doesn't take much demand to keep prices going higher.

At this point, the rally has gone on long enough that many of the participants who profited
from the extended move up are now becoming defensive. 

Also, some trading
relationships that tend to move together have decoupled. The following
chart shows the recent weakness of the China Shanghai Index and the Euro
in comparison to the U.S. Markets.

100321 China and Euro Comparitive Weakness

Some see the U.S. Market's continued relative strength as a precursor to a new leg of the bull market, while
others see it as a temporary anomaly.

Adding to the bearish case is that several sentiment indicators show
very little fear. The VIX
is moving back to the extreme levels of complacency. Odd-lot shorts
recorded a 13 week low, indicating that the "little guy" has virtually
given up on shorting. Likewise, the lack of fear is downright scary when
you look at CBOE's
Equity Put-to-Call
. These readings are contrary indicators, meaning they often occur at
turning points in the market.

And with quad-witching
behind us, and an unpopular health-care issue in
the news, the bears will have another chance to show their conviction … or lack of it. 

We'll see what happens.  I hope you have a good week.

Business Posts Moving the
that I Found Interesting This Week

  • Nice Overview, Weighing the Decision on Health Legislation. (OldProf)
  • Polls Show Only 27% Believe U.S. Heading in Right Direction. (Rasmussen)
  • Federal Reserve Faces Challenges and Changes. (Atlantic)
  • Pandit Sees Revival of Citi’s Fortunes. (FT)
  • What Does the VIX Really Tell Us Here? (Minyanville)
  • More Posts
    Moving the Markets

Lighter Ideas and
Fun Links

that I Found Interesting This Week

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